What do you think are the key requirements for an advice group that wants to become more involved in actually managing client portfolios?

David Wright, Managing Partner, Zenith Investment Partners (DW): Many advice businesses and dealer groups underestimate the level of resources required to become portfolio managers so that portfolio results are robust and are likely to perform well in all market conditions. With respect, I feel the ability to properly construct, manage, monitor and report on portfolios is beyond the resources and expertise of most advice groups. Nor are they prepared for the scrutiny which their decisions will be exposed to.

It’s quite possible for advice businesses to achieve reliable outcomes for clients provided they are prepared to deploy the level of resources necessary. This means:

• Having the discipline to develop an investment philosophy and document it in the investment committee charter
• Having a team that approaches the investment process single-mindedly – developing portfolios is not a part time job, done when there aren’t clients to see or a business to run
• Having a team with the experience of making decisions in both boom and bust markets and usually under conditions of uncertainty – there’s nothing like a severe market correction to create a personal understanding of risk tolerance
• Having the discipline to develop an investment philosophy and document it in the investment committee charter
• Being able to cover a large proportion of the investment universe – this not only uncovers opportunities for investment but also gives a degree of insight on the processes in managers that you have in your preferred list
• A tool set which enables decisions to be made on the basis of facts and supports ‘what if’ analysis leading up to decisions
• Being free of conflict from the outcome of the decisions.

Generally, for businesses and dealer groups that are not institutionally owned, this means making sure that the investment committee has a close working relationship with an external researcher like Zenith. Increasingly, as advice businesses want to have their portfolio represented on platforms in the form of MAs or want to offer them through MDA services, the platform provider or MDA operator will insist on external researcher involvement to ensure that the professional standards are maintained.

What should an advice business or dealer group expect to get from a research house like Zenith as a participant in their investment process?

• Most importantly, experience in all aspects of portfolio construction, manager selection and communication of the results
• Then, discipline to ensure that the investment committee and advisory business stick to good practice in key areas like decision-making, documentation of charters and decisions and management of the investment committee
• Technical skills in areas like asset allocation and manager review
• Good reporting tools that help present decisions to advisers and their clients
• Accurate performance reporting, including attribution analysis so that the advice business knows where value is being added or lost and look through characteristics reporting so both the adviserand their client can see where the portfolio is invested
• The capacity to adapt their own views to incorporate those of the advisory business.
  
  

I feel the ability to properly construct, manage, monitor and report on portfolios is beyond the resources and expertise of most advice groups. Nor are they prepared for the scrutiny which their decisions will be exposed to.

What benefits have you seen dealer groups get from managed account solutions?

DW: Whether they adopt our standard portfolios or we work with them to develop a more customised approach, there are a large number of benefits:

• Consistency between client portfolios and the standard portfolios which greatly reduces compliance issues
• Better client outcomes in their portfolios from better decision-making
• Elimination of return slippage between decision and implementation
• Advisers with more confidence in the investment process
• Better reporting from advisers and clients so that they really can understand both what they hold and why each portfolio element was included
• Greatly enhanced practice efficiency – but this is a byproduct of the other, more important benefits.

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